With recent FLA figures showing that second charge business was up 31% in March, year on year, and with annual figures now over the £1 billion mark, I think we can safely say that second charge mortgages are fully established in the lending landscape.
It has taken time to build the kind of momentum that has seen steady but regular increases in new business and much of the change in attitude has been down to the work that the industry has done to educate and inform advisers.
However, it is worth noting that the support of the regulator for second charge lending, by establishing its place as a viable alternative for consumers to consider when capital raising, has been of vital importance. When the FCA took over the regulation of the second charge sector, we adopted all of the regulatory habits of the first charge market and this provided a degree of legitimacy without which many advisers had felt they could only consider remortgaging or further advances.
Regulatory support and the efforts of the sector working with advisers have been instrumental in bringing second charge out of the shadows and allowed the simplicity and quick access to funds become the features which have fuelled the steady increase in new second charge business.
More advisers and their customers have been coming to us because they recognise that a second charge mortgage makes capital raising simple and clear cut, with funds in their account quickly and with no fuss.
Without having to disturb a perfectly good first mortgage and with rates starting at c.3%, second charge loans make an attractive proposition for anyone who wants to raise money for almost any purpose and which can be repaid at any time without penalty in some cases or as little as one month’s interest.
After all the long winded debates about the merits of second charge or remortgaging, it is good to see that advisers are seeing just how versatile a second charge mortgage can be, as we can see from the increasing volumes.
However, this not a battle for proving remortgaging or the second charge alternative is best. Every case we do and every client we see need to be approached with an open mind. So, instead of simply adopting a stance which always favours one over the other, it is important to recognise where and when the interests of the customer are best served by being completely even handed and recommending which approach meets the needs of customers best.
If we take a look at the places where second charge can really work for a customer, they can be summarised by seeing where they have specific issues that make a remortgage more questionable.
Replacing an interest only mortgage with a remortgage which includes capital repayment can cause considerable payment shock. The same can be said of remortgages where, because of a customer’s deteriorating credit profile, the rates available are likely to be considerably more than the existing mortgage. Just two examples where there is a good reason to look beyond the remortgage for a simpler solution that leaves the original mortgage intact with the extra funding sourced from a standalone second charge.
There are plenty of other examples I could use to illustrate my point, but if the overriding consideration should always be to provide the best solution for the customer’s particular circumstances, then adopting a ‘horses for courses’ mindset and picking a solution based on the evidence, would help ensure that more customers get the funding they need in a form that suits them best.
Jeff Davidson is head of intermediaries for Fluent for Advisers